Education-as-a-Service: 5 ways higher ed must adapt to a changing market

Most colleges and universities today provide the educational equivalent of enterprise software.

You remember buying enterprise software. It was a big-ticket item that you had to customize and implement. And then every couple of years you’d need to upgrade to the new version. But Software-as-a-Service (SaaS) companies changed all that. Businesses can now “rent” software per user per month, and vendors have unbundled their offering into component parts so that customers only need to buy what they need.

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Current university degree offerings are similar big-ticket items — they’re bulky and require several years to complete. Students/customers pay for the whole thing regardless of what they really need.

It is the failure to shift toward a la carte pricing, and a more flexible delivery model, that motivates the “Peter Gregory” on HBO’s new series “Silicon Valley” – a barely fictional version of the real life Peter Thiel – to offer $100k to aspiring entrepreneurs willing to drop out or bypass college altogether.

But as with enterprise software companies, customer preferences will eventually force colleges and universities to transition from selling bloated, expensive degree programs to “Education-as-a-Service” (EaaS).

The transition won’t happen overnight. (Even on the software front, most large vendors continue to expect a significant percentage of their sales to be enterprise for years to come.) But it will happen.  Enrollment declines at non-elite institutions demonstrate that students are growing wary of buying degrees without a clear indication of return on investment.

Within a few years, some students will come to higher education with an understanding of their current competencies, the competencies required for their dream job, and the resulting gap. Colleges will need to respond to these students with more than just a course catalog.

For example, for an 18-year-old who wants to start a career in video game design, colleges will offer courses that produce the requisite skills for an entry-level position – in addition to some general education – and will award a meaningful credential at completion of those courses (a process that will be completed likely in less than four years).

Or a laid-off marketing manager, whose time-to-job is six months rather than four years, may come to a university for reskilling in social media marketing, taking four targeted courses and earning a credential that employers can understand.

So what can higher education institutions do to prepare for EaaS?  Let’s look at five lessons colleges and universities can learn from SaaS market leader Salesforce.com.

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1. Decide on your business model(s) before doing anything else. Decide whom you’re serving, what value you’re trying to provide, and who’s paying the bill. Today, the higher ed customer does not only include traditional-age students. Older learners constitute 43% of all higher education enrollments. Other target customers to consider might be the employers who hire graduates. Keep in mind most leading technology companies already support over five discrete business models.

2. Instill “customer for life” mindset in sales and support. Starting with the first sales call, sales needs to be focused on delivering value to the customer versus generating as much revenue as possible upfront. Salesforce.com’s service and support organization is called “Customers for Life.”

This sounds scary for colleges and universities. But it was equally scary for Adobe, which recently launched a SaaS product called Creative Cloud to replace Creative Suite. While Creative Suite required up-front sales of $2,600 per product, Creative Cloud is available on a $50 subscription basis, and individuals can purchase parts of the design software instead of the entire offering (much of which often goes unused). This a-la-carte model provides new opportunities to build customers for life, who can purchase different services as their needs evolve over time. Winning institutions will provide for the ongoing educational needs of their customers.

3. Product development must be agile. Salesforce.com issues approximately 500 product releases each year. Continuous enhancement requires an operations organization that is separate and distinct from product development.

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In higher ed, this means that faculty can no longer develop a course and teach it the same way for a decade. EaaS will require that learning experiences be kept up-to-date, often with examples pulled or curated from the day’s headlines. Also, while colleges and universities are long on “product development” resources (i.e., faculty), they are short on operations. Traditional institutions going online have filled the operations gap through partnerships with service providers. Service providers are likely to play an even more prominent role as operations becomes more central to the core value proposition.

4. Focus customer service on outcomes. Customer service isn’t about answering technical queries. Rather, it’s about using Salesforce.com to improve the efficiency of the customer’s business.

For colleges and universities, customer service will mean helping students optimize the return on their tuition investment. This means better understanding how the institution’s offering prepares students for the specific skills in demand by employers, and then helping students better connect with those employers by making the skills visible to employers (through “double-click” transcripts or digital portfolios) or via direct connection to employers.

5. Rethink governance and leadership structures to make better, faster decisions. For software companies, the enormity of the challenge in moving to a SaaS model has been huge. For universities — many of which are struggling with the notion of digital delivery of existing programs — moving to EaaS will be even harder. Perhaps the biggest challenge for most higher education institutions is that their governance structure today barely allows them to drive effectively. And when the vehicle heads over the cliff, current steering structures will prove quite inadequate. Winning institutions will be those that streamline governance today for quicker, more effective decision-making tomorrow

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Colleges and universities might be well-served to remember the adage “If you can’t beat ‘em, join ‘em.”  In this case, if you can’t convince the Peter Gregorys of the world that you are providing value, become more like the SaaS companies he funds. It’s a long road from here to EaaS. But like Adobe, the winning institutions will be those that transition earlier rather than later. Even in Silicon Valley, every journey begins with a single step.

Ryan Craig is a founding Managing Director of University Ventures, an investment firm focused on enabling innovation from within colleges and universities. He previously led the Education & Training sector at Warburg Pincus. He received bachelor’s degrees in Literature and Economics summa cum laude and Phi Beta Kappa from Yale University, and his law degree from the Yale Law School.